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Spotlight Article

Caspian Oil Rivals Jockey for Position

October 06, 2011

After nine years of planning, the Nabucco oil pipeline consortium submitted a bid to export Azerbaijani gas exports at the weekend, saying its pipeline was the best of three rival projects vying to carry Caspian resources to Europe.

But BP, the principal western company in the Caspian, is not convinced.

Only last week, the UK oil major revealed it had a fourth pipeline option up its sleeve to link the vast Shak Deniz field offshore Azerbaijan with European markets.

Each of the three pipeline groups actively bidding for the exports belong to the European Union-backed Southern Corridor that aims to  boost Europe’s energy security by opening a link with the gas-rich Caspian region that by-passes Russia.

The most ambitious of the three is Nabucco, a new, 3,900km pipeline across the south Caucasus and Turkey to Austria that could eventually draw in gas from other producers in the Caspian region, the Middle East and north Africa. Its two main competitors are the Interconnector Turkey-Greece-Italy and the Trans Adriatic Pipeline, would both use a combination of new and existing pipelines to carry Caspian gas to Europe.

A fresh rival appeared on the table last week when BP said it was considering a pipeline that would reduce costs by targeting markets closer to Azerbaijan. Although still at an early stage of planning, BP’s project would fit with the EU’s mission to introduce new gas supplies to Bulgaria, Romania and Hungary – countries historically dominated by Russia and its state-controlled gas company, Gazprom.

BP’s announcement was discouraging for the more ambitious consortia. “It sounds like a code for ‘We don’t need a big pipeline at the moment,’ said Professor Jonathan Stern, the head of gas research at the Oxford Institute for Energy Studies.

The EU supports the Southern Corridor as a way to boost Europe’s energy security by reducing dependence on Russian gas supplies at a time when Moscow is trying to increase its grip,  notably with the newly-constructed Baltic Sea pipeline called Nordstream and with a planned Black Sea pipeline named Southstream.

Nabucco is widely seen as the most ambitious response to Southstream, as it bring 31bn cubic metres a year of gas into the heart of Europe.

However, while the project might make political sense there are questions about its commercial viability. If pipelines are to make a good return for investors they need to operate at full capacity and so far Nabucco has struggled to find supplies.

Even if the group wins its bid for Shak Deniz gas, the field will only have 10bn cubic metres of gas a year available for export to Europe in the foreseeable future – enough to fill less than one third of Nabucco.

The EU last month pledged to step up efforts to include Turkmenistan in the Southern Corridor only to meet a rebuke from Russia which opposes the construction of pipelines across the Caspian Sea, giving  on environmental grounds.

Gazprom has offered Azerbaijan an alternative to Nabucco proposing to buy all the country’s gas supplies.

However, Baku, striving to balance its interests between Russia and the west, is unlikely to fall into the trap.

BP also has to weigh its geopolitical priorities carefully when selecting a pipeline for Shak Deniz gas.  The UK major may have headline-grabbing assets in Azerbaijan, but they are dwarfed by its very profitable – if troublesome – interests in Russia. Annoying Moscow just to please Baku won’t make sense.

 

http://blogs.ft.com/beyond-brics/2011/10/03/caspian-pipeline-rivals-jockey-for-position/#ixzz1ZuFzayTT

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